Discuss simple average of price relative method.

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Solution

Simple Average of Price Relative Method: According to this method, price relatives are first obtained for each commodity and then the simple average of all the price relative is taken.

Price Relative $(P_{01})$ = $\frac{C u r r e n t Y e a r P r i c e (P_{1})}{B a s e Y e a r P r i c e (P_{0})} \times 100$

We can find out price index number of the current year by using the following formula

$P_{01} = \frac{\sum [\frac{P_{1}}{P_{0}} \times 100]}{N}$

where, N = Number of goods, $P_{1}$ = Current year's price, $P_{0}$ = Base year's price

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